CROWD POWER Can the Crowd Close the Financing Gap?

Davinia Cogan and Simon Collings 1 CONTENTS

1.0 Executive Summary...... 3

2.0 Introduction...... 4

3.0 Market Update: 2016 Snapshot...... 5

4.0 Role of Crowdfunding...... 8 4.1 Donation Campaigns...... 9 4.2 Reward Campaigns...... 14 4.3 Debt Campaigns...... 21 4.4 Equity Campaigns...... 30

5.0 Crowd Power Progress...... 35

6.0 Risk Analysis...... 39

7.0 Conclusion...... 43

Notes on Data Sources...... 44

This material has been funded by UK aid from the UK government; however the views expressed do not necessarily reflect the UK government’s official policies.

Published July 2017 Design: www.dougdawson.co.uk

2 EXECUTIVE 1.0 SUMMARY

Crowdfunding for energy access related projects and off-grid energy businesses grew from $3.4 million in 2015 to $8.7 million in 2016. Debt and equity campaigns accounted for more than 90% of the market; and raised 53% and 39% respectively. While crowdfunding for energy access is a small component of overall fundraising for off-grid energy companies operating in Sub-Saharan Africa and Asia, we have found that various forms of crowdfunding have a role to play at this juncture. We believe the growth of energy access related crowdfunding over 2016, particularly debt crowdfunding, signals the increasing role of crowdfunding for companies trying to close the financing gap. This report highlights fundraising trends across donation, reward, debt, and equity crowdfunding; and shows how non-profits and social enterprises are utilising crowdfunding to close the financing gap experienced by many early stage companies, and non-profits. Energy access related donation, debt, and equity crowdfunding grew steadily in 2016; while reward crowdfunding activity declined. The Crowd Power programme, which this report shares learnings from, contributed a total of $250,000 across 16 energy access related campaigns in 2016, which in turn raised $1.5 million for projects expected to provide 62,500 people with energy access.

Donation campaigns continue to be an important part of the overall crowdfunding market for and in Africa, making up 17% of crowdfunding on the continent. Yet energy access related campaigns appear to be underrepresented. Donation crowdfunding accounts for only 3.5% of all energy access related crowdfunding, and is dominated by micro-donations. Donation crowdfunding for start-ups raising seed capital is starting to emerge, and may be an area of growth. In 2016, the amount raised on reward platforms was down 40% on the previous year. Reward campaigns tend to be infrequent, with a variation in the amount raised, and success depends greatly on the network of the business or non-profit raising funds. While larger, high profile campaigns get much of the attention, it is likely the smaller campaigns (<$50,000), by start-ups raising seed capital from their networks, that will continue to grow steadily over the coming years.

Debt crowdfunding appears to demonstrate the most promising and sustained growth of all energy access related crowdfunding activity. Although debt crowdfunding was previously dominated by zero-interest (to lender) microloans, interest-bearing working capital loans grew significantly in 2016. They now account for almost half of all energy access related debt crowdfunding, while they accounted for less than 10% of debt crowdfunding in 2015. Energy access related equity crowdfunding grew exponentially over the year, following three large transactions, averaging $1.1 million. This growth is encouraging, and demonstrates the potential of equity crowdfunding, however much work needs to be done across the ecosystem – from building a strong investment pipeline to working with regulators to bolster investor confidence and platform growth – to ensure sustained growth and capital access for earlier stage companies working in off-grid energy access.

3 2.0 INTRODUCTION

Crowd Power: Can the Crowd Close the The subsequent section provides an overview Financing Gap? is the second report in a of Crowd Power activities and achievements. The report concludes with an analysis of risks to series of research on crowdfunding for campaign-backers, campaign-makers, and the donor energy access in Sub-Saharan Africa and community. The purpose of this report is to provide Asia. It examines the role of crowdfunding guidance to funders looking at how best to engage in closing the financing gap experienced with crowdfunding, and to share the lessons we have by businesses and non-profits providing learned so far. It is also to help social enterprises and non-profits looking to raise funds from the crowd, and products and services to off-grid to inform platforms looking to enter new markets. communities. It is worth noting that data on energy access The report begins with an update on market data crowdfunding, and crowdfunding in general, is and key trends across the energy access related limited and that there is not one comprehensive crowdfunding space. The bulk of the report examines data source. We have used available industry data how donation, reward, debt, and equity campaigns from the Cambridge Centre for Alternative Finance, are used by social enterprises and non-profits. We Crowdsurfer, and data collected by Energy 4 Impact, analyse key trends across the four different campaign which includes data from our platform partners – Kiva, types, consider the impact of various campaigns, Bettervest, Indiegogo, Lendahand, GlobalGiving, and explore the role of crowdfunding in the context Trine, Crowdcube, Pozible, and M-Changa. Other of organisational and sector-wide financing needs. data referred to was obtained from various social We have also identified opportunities for scaling up enterprises and non-profits launching campaigns, support to the energy access crowdfunding space. and through our work supporting off-grid energy businesses on the ground in Kenya, Tanzania, Rwanda, Uganda, and Senegal. It is important to note that while the data captured here does include relevant projects in Asia, our understanding of energy crowdfunding in Asia is not as comprehensive as our understanding of the African market.

4 MARKET UPDATE 3.0 2016 SNAPSHOT All data in this section is Energy 4 Impact and Crowdsurfer aggregate data, 2016, see Notes on Data Sources.

Top 10 Countries for Energy Access Crowdfunding 2016

Mali Campaigns: 1 Raised: $385,000 Main platform: Bettervest 3 Hondurats Phillipines Campaigns: 1 Campaigns: 188 Raised: $111,000 Raised: $153,100 Main platform: Lendahand Main platform: Kiva 7 9 10 Mexico 8 Campaigns: 232 Raised: $92,500 India Main platform: Kiva Campaigns: 72 2 Raised: $142,100 4 Main platform: Kiva 6 Ghana Cambodia Nicaragua Campaigns: 3 Campaigns: 349 Campaigns: 241 Raised: $435,000 Raised: $227,000 Raised: $160,100 Main platform:Bettervest 1 Main platform: Kiva Main platform: Kiva Kenya Campaigns: 2000+ 5 Raised: $1,800,000 Zambia Main platform: Kiva Campaigns: 16 Raised: $172,411 Main platform: Trine

In 2016, energy access focused projects and to lead and accounted for 53% of all crowd-sourced businesses raised $8.7 million, growing 156% since funds for off-grid energy related campaigns. Donation the previous year. The biggest shift was in equity campaigns accounted for only 3.5% of all funds raised, crowdfunding, which grew from around $75,000 in but grew 45% over the year. Reward campaigns also 2015 to over $3.4 million in 2016 – the total of all off- accounted for 3.5% of the market, but the total amount grid energy campaigns in 2015. Debt, which was the of funds raised were down 40% on the previous year. dominant mode of crowdfunding in 2015, continued

5 Crowdfunding for Energy Access by Type 2015 – 2016

Donation 7% Equity 2% Equity 39%

Reward 16%

2016 2015 $8.7 million $3.4$8.7 millionmillion

Donation 4% Debt 75% Reward 4% Debt 53%

Globally, the dominant platform in energy access raising over $1 billion in loans on the platform since crowdfunding remains Kiva – they raised over $2.5 its launch in 2005. The dominant country for off-grid million in loans for off-grid energy products in 2016 energy crowdfunding globally remains Kenya; debt and launched over 4,000 campaigns. The platform campaigns alone raised over $1.8 million.2 itself reached an important milestone in mid-2017,

Top 10 Countries for Energy Access Crowdfunding 2016 Country Number of Campaigns Amount Raised ($) #1 Platform Kenya 2,000+ 1,800,000 Kiva Ghana 3 435,000 Bettervest Mali 1 385,000 Bettervest Cambodia 349 227,000 Kiva Zambia 16 172,411 Trine Nicaragua 241 160,100 Kiva Honduras 188 153,100 Kiva India 72 142,100 Kiva Phillipines 1 111,000 Lendahand Mexico 232 92,500 Kiva

*Campaigns that raised funds for businesses and projects in multiple countries not included.

In 2016, UK based equity platform, Crowdcube, crowdfunding is encouraging, yet we note the high raised over $2 million two start-ups – BuffaloGrid quarterly variation in equity campaigns over the past and Renovagen. A third campaign, by WakaWaka on 3 years, which can distort data. There was an average Oneplanetcrowd, raised close to $1.2 million in late of 5 months between energy access related equity 2016. The growth of energy access related equity campaigns in 2016.

6 Top 10 Platforms for Energy Access 2016

Platform Number of Amount Raised ($) Platform HQ Funding Type Campaigns Kiva 4,000 2,500,000 USA Debt (microloans) Bettervest 5 1,100,000 Germany Debt (SME loans) Lendahand 16 650,000 The Netherlands Debt (SME loans) Trine 8 490,000 Sweden Debt (SME loans) Kickstarter 2 85,600 USA Reward Indiegogo 12 84,200 USA Reward Catapooolt 2 61,500 USA Reward The Footprints Network 7 37,200 Australia Donation Benfeitoria 2 36,900 Brazil Reward kitabisa 2 32,000 Indonesia Donation

Top 3 Platforms for Energy Access

Platform Number of Amount Raised ($) Platform HQ Funding Type Campaigns Kiva 4,000 2,500,000 USA Debt (microloans) Zidisha 54 11,700 USA Debt (microloans) Lendahand 16 650,000 The Netherlands Debt (SME loans)

Debt crowdfunding, which includes microloans and million in 2016. Lendahand raised $550,000 for energy working capital loans to SMEs, almost doubled over businesses in Kenya, Tanzania, and the Philippines; the year and raised $4.6 million. Microloans make this made them the third largest debt platform in this up 55% of all debt crowdfunding, mostly on Kiva, space, behind Kiva and Bettervest. Newcomer, Trine and working capital loans make up the remaining raised close to $450,000 in financing for solar energy 45%. Bettervest was the leading platform for crowd- companies in Africa over the year. sourced working capital loans, raising close to $1.1

Top 10 Campaigns for Energy Access 2016 Company Amount Raised ($) Platform Campaign type Country Renovagen 1,350,000 Crowdcube Equity Various WakaWaka 1,266,166 Oneplanetcrowd Equity Various Buffalo Grid 719,550 Crowdcube Equity India, Uganda Mobile Solarkraftwerke Afrika 384,615 Bettervest Debt Mali GmbH & Co. KG SunTransfer GmbH 263,958 Bettervest Debt Kenya UMAWA Deutschland UG 203,519 Bettervest Debt Ghana (haftungsbeschränkt) UMAWA Deutschland UG 120,047 Bettervest Debt Ghana (haftungsbeschränkt) UMAWA Deutschland UG 111,056 Bettervest Debt Ghana (haftungsbeschränkt) Vitalite 111,000 Trine Debt Zambia WEnergy Global 111,000 Lendahand Debt Philippines SimGas 111,000 Lendahand Debt Tanzania

7 THE ROLE OF 4.0 CROWDFUNDING

For the purpose of analysis we have divided crowdfunding activity into four mutually exclusive categories – donation, reward, debt, and equity. Each of these categories have their own characteristics and understanding how these different fundraising types are evolving is vital to assessing where opportunities lie, and where interventions can have the most impact. In this section we present insights from our direct engagement with a number of platforms and campaigns, as well as from broader research on crowdfunding for energy access. Activity is growing and we see opportunities ahead, particularly for debt and equity. Based on our observations we offer a series of recommendations to funders, platform operators, and campaign makers.

Equity $3,400,000

Crowdfunding 39% for Energy 53% Access 2016 $8.7 million

3.5% Donation $340,000 3.5%

Reward $335,000 Debt $4,600,000

8 4.1 DONATION CROWDFUNDING FOR ENERGY ACCESS

Globally, donation crowdfunding, of all types, raised About Donation Crowdfunding over $300 million in 2016. Over the same period, Distinct from philanthropically motivated microloans, donation campaigns in the UK and the Americas donation campaigns have an average campaign size accounted for 0.4% and 1% of crowdfunding activity, of around $3,00010, whereas Kiva has an average loan respectively3. In Europe and Asia (ex. China), 2.5% and size of less than $50011. Interestingly, the funding rate of 2.2% of crowdfunding was for donation campaigns4. donation campaigns is lower than any other campaign In the Middle East, 4.6% of crowdfunding is donation5. type. Of all donation campaigns launched, only 32% of In Africa, donation campaigns account for a much campaigns received funding12. By contrast 67% of reward larger market segment; they amount to 17.1% of all campaigns, 89% of debt, and 100% of equity campaigns crowdfunding activity6. After debt crowdfunding, were at least partially funded over the same period13. donation campaigns are the second most dominant These include campaigns that reached their campaign in Africa. This is likely due to a lack of regulatory target as well as those that had partially funded guidance for more sophisticated alternative finance campaigns. types as well as a smaller campaign pipeline, vis- à-vis the Middle East for example, where equity Global Giving is the dominant platform for energy access crowdfunding dominates7. related donation campaigns. Their ‘campaigns’ differ from other platforms in that one campaign raises funds Energy-access related donation campaigns are for multiple projects. Each Crowd Power supported less than 4% of all donation campaigns and raised ‘campaign’ on Global Giving, raised funds for an average $340,000 in 2016 – up 45% from the previous of 13 individual projects and had an average campaign year8. Given the overall importance of donations size of $66,50014. Many of the grassroots organisations in crowdfunding for, and in, Africa, energy access raising funds rely on crowdfunded donations for a is significantly underrepresented. Nonetheless, significant percentage of their operating budget – several social enterprises and numerous non-profits sometimes up to half of their total income is sourced this working to improve energy access utilise donation way15. The evolution of online fundraising is an important crowdfunding for a variety of purposes. Donation opportunity for these organisations as working at the platforms like Global Giving support grassroots non- grassroots level makes it difficult to access funds locally. profits in developing countries to raise donations, They often work in resource poor, distant locations predominantly from Western backers, and total rather than cities where funding may be easier to obtain. funds raised grew 300% in 20169. These non-profits Raising funds online also reflects a broader trend in the use crowdfunding as a regular income stream to non-profit sector as charities move away from traditional supplement other grant funding. fundraising and leverage the opportunities brought about by widespread internet access. Most donation platforms raise funds across a broad range of themes, and there is opportunity for Like all types of crowdfunding, donation crowdfunding integration of more energy related fundraising across varies from platform to platform. M-Changa, a donation education, health, women and girls, and disaster platform based in Kenya, formalised the local cultural action campaigns. Social enterprises, on the other practice of ‘harambee’ – where the community gets hand, tend to launch donation campaigns as a one- together to fundraise. They have leveraged Kenya’s off fundraiser to gather contributions from family and advanced mobile money infrastructure in doing so, and friends. These campaigns are generally for a specific host campaigns by individuals and institutions, as well as purpose such as developing a product prototype. a few by local start-ups. Early stage social enterprises can Some of these enterprises, if successful, go on use the platform to raise funds from family and friends, to raise commercial capital – potentially via debt and their extended network. Donation crowdfunding of or equity crowdfunding – once they have a viable this type is an important option for start-ups as raising product and business model. early-stage finance from traditional financiers is a challenge; particularly in the early days, while still refining the business model and for those in pre-revenue mode.

9 Crowdfunding Supplements undeveloped off-grid energy markets e.g. Eritrea. We Grassroots Fundraising anticipate there is little impact on the market – as it Data from Global Giving suggests grassroots barely exists – and campaigns provide a significant organisations tend to reach a range of beneficiaries, benefit to the 900 or so people that benefit from from a few hundred to several thousand, with each the average campaign18. We must also consider that campaign. The relationship between the amount donors play a role in developing energy markets, and raised and beneficiaries reached does not appear have been linked to the growth of the solar PV market to be linear with a range of $30 – $333 raised for in Kenya19. Additionally, 8% of respondents in a recent each household reached16. This may partly be due study by SolarAid, Acumen Fund, and ETH Zurich, to the high variation in unit costs of items provided said they first heard about solar through a non-profit to communities, which range from solar lanterns to organisation20. custom-made efficient cookstoves. Our analysis of the number of units provided to the community, relative At a macro-level it is difficult to measure the impact of to campaign targets, suggests a significant portion these campaigns on communities. This is complicated of fundraising goes to project implementation costs, by low spending transparency on many donation including operating costs and administration. campaign pages, and that spending is not exclusively on products for the community – with an average of In some cases the retail cost of the products (e.g. solar half of fundraising spent on organisational operating lanterns) provided to beneficiaries is only one-quarter expenses. While debt and equity campaigns often of the campaign target, suggesting partners utilise show more granular expenditure, and include the platform to supplement their operating costs. budgets and other financials, donation campaigns While this may alarm some, Global Giving encourages do not tend to stipulate exactly how funds will be their partners to apply ‘full cost recovery principles’. spent. This may be because there is less pressure This would appear sensible, as what is the point of from the crowd given they are donating to a charity, purchasing inventory where there are not sufficient and they may just assume the organisation will do resources to get them to the end-user? We should the right thing. Whereas, an equity investor may also consider that the adoption of new technologies have higher expectations of transparency as they requires behavioral change and the non-profit are expecting their money back, and with a return on sector plays an important role in market education their investment! Additionally, backer contributions and sensitization – which costs money. For these on donation platforms are considerably lower than organisations, product giveaways, or subsidization, is those on equity platforms. Some donation platforms a small part of their overall activities, which are often also allow partners to reprioritise the use of proceeds focused on broader social objectives targeting women if a more urgent need comes up, giving organisations or education, for example. We would therefore expect more flexibility to respond to community needs. campaign targets to include other running costs such as staff salaries, maintenance, transport, and indirect Due to the size and nature of many non-profits costs. Global Giving conducts an expenditure analysis utilising donation platforms, sophisticated internal on partners every two years – part of their standard impact metrics are not available. Our analysis of due diligence – to identify irregularities in spending, six Global Giving partners showed they planned to and other issues. reach a total of 2,700 households with total campaign proceeds of $140,000. The cost of providing a solar Impact of Donation Crowdfunding in lantern to a household ranged from $35 to $64 Marginalised Communities per unit, inclusive of operational and administrative Importantly, many grassroots organisations raising expenditure. The higher cost per beneficiary for these funds via crowdfunding operate in countries or organisations, compared to many energy-access regions where there are not well-developed solar businesses, is likely due to the small-scale of these markets; unlike India or Kenya, which are the two partners, and their work in remote communities, which largest markets for off-grid solar globally17. While can create cost inefficiencies. A recent campaign by product giveaways are generally perceived by the Community Building Group on Global Giving installed industry as a threat to the development of the off- a solar system at a school in Kamsi, Burkina Faso – a grid energy market, these grassroots organisations town with a population of only 2,000 people. tend to operate in remote areas of countries with

10 “Before this project, we had to release the pupils earlier than class end time because it was impossible to see. Now we stay in class according to the normal class schedule as students and I can all read thanks to the solar light. This is great for us!” Mrs. Zongo, fifth grade teacher, Kamsi, Burkina Faso Community Building Group Ltd raised over $35,000 on donation platform Global Giving

11 Kenyan Start-Ups Raise Donations Start-Ups Launch Technical and Eight energy access campaigns were hosted on Market Pilots the M-Changa in 2015 and 2016, and five of these Interestingly, our analysis of selected campaigns on were supported through Crowd Power. The average the M-Changa platform showed a similar expenditure campaign target was $24,500 for these campaigns, pattern to those on the Global Giving platform. On compared to an average campaign size of less average, half the campaign target was spent on than $1,00021 across the platform. Many campaigns inventory22. Between 20% and 70% of proceeds were we supported allowed start-ups to raise funds to spent on the product, with the remaining funds spent launch pilots and grow their businesses, however a on product development, research and development, small number of campaigns highlighted the need manufacturing, and other running costs including for consideration around the deployment of match staff, training, and marketing. This makes sense given funding. The higher level of match funding, at 50% of there are few other fundraising opportunities available the campaign target, i.e. dollar-for-dollar, seemed to to early stage social enterprises in emerging markets, incentivise some campaign-makers to inject company especially local entrepreneurs. Crowd sourced funds funds into the campaign, often through family and supplement all operating expenditure and costs friends, to leverage the maximum amount of match associated with bringing the final product to market, funding available. There was also suggestion of a including market testing and training distributors, social enterprise offering some donors their money as well as the costs associated with importing and/ back at the completion of the campaign, along with or manufacturing the product itself. Technical pilots, interest. prototyping, and market testing were the main uses of funds from the campaigns we analysed. These are important considerations for development agencies and philanthropists supporting campaigns. Almost all the social enterprises raising funds on Match funding levels should be appropriate to the M-Changa had operated for less than two years. campaign type and the amount being raised. In Our analysis of Crowd Power-supported campaigns our experience, match funding is most effective on shows these social enterprises had raised an average donation platforms at around 25% of the total amount of $40,000 from various sources prior to launching raised. It should also be capped at a certain threshold their campaigns23. Additional funds were in the (e.g. the campaign target). In some cases, additional form of owners’ equity. The use of proceeds is also due diligence including the review of invoices and similar to smaller campaigns by energy start-ups we certified company accounts may be appropriate. identified on reward platforms, where start-ups with international networks raise funds from family and Donation campaigns for individuals and institutions friends. However, these reward platforms are rarely (e.g. schools, hospitals) are the natural domain an option for local businesses, as platforms don’t of M-Changa, and campaigns by businesses are facilitate mobile money transactions. This capital is an rare. M-Changa co-founder Kyai Mullei believes essential resource for start-ups and to get a product “institutions and businesses are more likely to attract ready for market launch. Of course, some of these donations where the donor is financially incentivized enterprises will fail and may have little direct impact through interest or discounts on future services, on communities, however some may reach scale and which contrasts with the incentives used to attract have a significant impact – at this point it is too early donations on Western philanthropic platforms – like to tell. gifts [rewards] and tax breaks”. Kyai suggests “the development sector can assist in changing the attitudes of potential donors toward supporting businesses by participating in the education of potential donors about the greater good aspects of energy campaigns, and how everyone is affected”.

12 KEY POINTS – DONATION CROWDFUNDING

Globally, donation campaigns account for a small Match funding tends to increase the amount share of the overall crowdfunding market; they raised by partners as it can motivate grassroots account for an average 1.5% of total market share organisations to have stronger campaign across the UK, Europe, the Americas, and Asia outreach, while enticing philanthropically (ex. China). motivated donors. The level of match funding In Africa, donation campaigns make up a sizable tends to be optimal at 25% of the campaign chunk of the market, accounting for 17.1% of target, while reducing the incentive for funds raised via crowdfunding. Energy access, organisations to ‘self-fund’ their campaigns as a theme, is significantly underrepresented through personal and proxy donations. in donation-based crowdfunding for Africa, M-Changa has hosted 8 campaigns by Kenyan potentially because delivery is largely through social enterprises, since 2015, with an average for-profit enterprises. There is potential to campaign size of $24,500. These campaigns increase support of energy access focused raised funds from their own networks, to launch projects by combining energy with other themes product pilots, complete R&D, and launch including education, health, and gender equality. prototypes. In markets where raising early-stage Energy access focused campaigns raised close capital is problematic, crowdfunding is one of to $340,000 on donation platforms in 2016 – the few opportunities start-ups have to get their growing 45% since the previous year. The average businesses off the ground. campaign size was $3,000. Match funding assists organisations to reach Global Giving is the dominant donation platform their targets by mobilising family, friends, and for energy access campaigns. Grassroots networks. It can also add legitimacy to the cause. organisations use the platform to raise funding The level of match funding needs to be watched, for specific initiatives and general operating as well as the pattern of donations to check for expenditure. Crowdfunding can assist these ‘self-funding’. We also suggest obtaining the organisations to reach marginalized communities, organisation’s financials before and after the which are unlikely to be reached through the campaign and/or obtaining proof of purchase. private sector.

13 4.2 REWARD CROWDFUNDING FOR ENERGY ACCESS

Reward campaigns are often cited to illustrate the point, as successfully funded campaigns do not incredible potential of crowdfunding and the ability to necessarily translate into strong sales in their intended raise millions of dollars for projects. The reality is that distribution markets. Successful campaigns are about campaign failure rates are high and few companies having a reward with a high novelty factor for Western raise big money. For example, only 1% of campaigns backers, which limits the use of crowdfunding for launched on Kickstarter raise over $100,00024. In the many off-grid energy companies. For this reason, energy access sector reward crowdfunding is suitable raising a large amount of funds (over $50,000) via for a few niche applications. There are few businesses reward crowdfunding is rarely suitable. There is also or projects that have the right formula to make it a high cost involved with launching a campaign as work. We have identified two campaign trends that producing a compelling video, promoting a campaign, dominate off-grid energy crowdfunding. Much like and fulfilling the reward component takes time and high-grossing campaigns in the more mainstream significant resources. technology, design, and gaming sectors, successful energy access related reward campaigns offer Other successful campaigns are typically by early- funders a novel product – the technology they are stage start-ups formalising contributions from family developing with the crowd’s money. and friends. They raise $10,000 to $50,000, and like the local start-ups that raise funds on M-Changa, WakaWaka and GravityLight have raised over they raise funds for prototyping, market testing, $750,000 and $800,000 respectively on Kickstarter and R&D. A reward is still offered, but it is typically a and Indiegogo through multiple campaigns between token of support such as a t-shirt or a bag of coffee. 2011 and 2015. Crowdfunding allowed backers to get The successful campaigns tend to be by start-ups their hands on the technology being developed with located in North America, Europe, or Australia and campaign proceeds. WakaWaka offered campaign have well-developed networks. They are usually backers their pocket sized solar LED light and phone post-ideation and ready to launch a technical pilot or charger, and GravityLight gave backers their kinetic begin market testing. They are too early-stage to raise powered light. The success of these campaigns commercial capital, but may have raised grant capital depended largely on the crowd’s perceived value of previously. While we know little at this stage about the reward. Generally, crowdfunding can be useful for the motivations of the crowd (this will be the focus technology developers to test market adoption rates, of a future report), based on data gathered during as the success of the campaign can be a good proxy the Crowd Power programme we anticipate these for market testing. backers are driven by their personal connection to the founders and altruistic reasons. Whereas for the However, the customers of WakaWaka and larger campaigns we mentioned previously, the crowd GravityLight typically live in off-grid communities in appears to be motivated by the value of the reward low-income countries, and are unlikely to back or offered, as well as the social impact aspect. even see their campaign pages. This is an important

Reward Campaign Trends – The 2 Campaign Types

Campaign Size Backers The Crowd’s Motivation Type 1: $100,000+ Network, regular Perceived value of rewards Large Campaigns crowdfunders, family and offered, novel concept friends Type 2: Smaller $10,000 – $50,000 Family and friends, network To support a friend or Campaigns initiative, philanthropic motivations

14 WakaWaka’s Success communities’ – those preparing for national disasters WakaWaka designs and manufactures a portable – as part of their campaign planning29. For their solar LED charger and light, smaller than an iPhone. subsequent campaigns, they reached out to backers They operate a three-pronged business model; from their first campaign. Ultimately they were able to they sell products on a Buy One Give One basis, secure coverage and backers because of their unique subsidise the purchase price for their units in off- and novel product, and their social impact focused grid communities, and give-away products during business model. disaster relief through the WakaWaka Foundation. They have raised over $750,000 through three Who is reward crowdfunding for? Kickstarter campaigns and managed to do so With low success rates on many crowdfunding with ‘close to zero marketing dollars’25. Generally, platforms and a low number of success stories in the crowdfunding recommendations focus on the energy access space, it can be difficult to understand campaign-makers network and suggest that at least the relevance of reward crowdfunding to the sector. half of the campaign target should come from their There appear to be two broad campaign categories network, family, and friends. WakaWaka’s experience within energy access crowdfunding; large campaigns contradicts this advice. Camille Van Gestel, co- mobilising backers through novel product offerings, founder and co-CEO, estimates less than 5% of what and smaller campaigns by early stage start-ups they raised came from their network26. raising money from family, friends, and their network.

So what was the key to their success and how The first category refers to those rare, high profile did they leverage their network and the platform, campaigns by companies like WakaWaka and Kickstarter, to raise this much funding? Six weeks GravityLight. Their campaigns gathered momentum prior to launching the campaign they began reaching because they offered novel products and had out to bloggers and journalists, and other influential well-formulated campaigns with quality campaign people on Twitter and Facebook. WakaWaka had materials. They also utilised online outlets and social four staff working around the clock on the campaign. media to promote their campaigns. Their outreach Two weeks prior to their launch they had already strategy, networks, and marketing were vital to formulated tweets, Facebook posts, and campaign their success. They also invested a lot of time and updates for the duration of the campaign, as well as resources into preparation and compiled a detailed new rewards and ‘stretch goals’ to attract new funders outreach plan prior to launching the campaign. and increase contributions. They also discovered that adjusting their rewards during the campaign As WakaWaka found, personal networks are not just increased their ranking and visibility on the platform. helpful for fundraising, they can be the key to gaining Their staff monitored the campaign overnight to media coverage and leveraging wider support. In fact ensure 24/7 coverage of backer-questions, across many of the campaign backers were not known to multiple time zones. WakaWaka’s co-founders utilised the campaign maker and heard about the campaign their networks in the Netherlands to get media via social media and other online sources. WakaWaka coverage, and raised the most funding the same day capitalized on the momentum by providing quick and they were featured in Mashable – the world’s leading personal responses, converting enquiries into financial media outlet for digital related news27. backing. While these campaign types can raise a lot of funding, it is rare that start-ups have the appropriate Camille’s advice to entrepreneurs planning a reward mix of a novel product, strong planning, appropriate campaign is: ‘Prepare. Prepare. Prepare.’28 He believes knowledge, superb execution, adequate resources, that starting outreach activities at the time of the and a strong network to create a successful campaign launch is too late. He advises reaching out campaign. Though, it is important to consider that one to networks weeks prior to the launch, and to make successful campaign can provide a launching pad for the communication personal. This should continue future fundraising. WakaWaka has used crowdfunding once the campaign launches with rapid, personal as its primary source of funds and has launched ten responses to enquiries via the campaign discussion campaigns so far30. board, social media, online media coverage, and email. WakaWaka targeted key audiences The second campaign category we identified during including environmentalists, NGOs, and the ‘prepper our examination of successful campaigns was those

15 campaigns by early stage start-ups that are raising their connection to the campaign maker, and a social seed capital from family and friends, and their cause, rather than the reward itself. Few of these network. They often raise $10,000 to $30,000 but start-ups use reward crowdfunding again as it can can raise upwards of $50,000, particularly if they be difficult to request more funds from their network, have match funding secured or a number of large unless there is a specific goal in mind. These start- contributors (like foundations or high-net-worth ups may go on to win further grant funding or raise individuals). These start-ups use crowdfunding commercial capital.. Crowdfunding usually provides a to formalise fundraising from family and friends – leg-up for these organisations and an opportunity to typically as a one-off fundraiser very early on in their demonstrate a track record to other potential funders. operations. Contributors are usually motivated by

3 Campaigns Analysed: Who is the Crowd?

Campaign 1 Campaign 2 Campaign 3 Target $25,000 $45,000 $100,000 Raised $27,738 $46,000 $101,378 Platform Indiegogo Pozible Indiegogo Average contribution* $182 $279 $2,069 Number of funders 147 85 46 Breakdown by category Crowd Power contribution 9% 49% 20% Family and friends 65% 20% 19% General network 2% 29% 0% Founders 2% 0% 61% Unknown 34% 2% >0%

*excluding Crowd Power contribution

Who is the crowd? appears to be uncommon for these campaigns Match funding can be a particularly effective tool for however, and in this case unknown backers are likely these campaigns as it builds integrity and validates to be via the campaign makers expansive networks the start-ups work. Crucially, match funding builds through their attendance at a high profile business momentum during the campaign by increasing the school, and nomination for the Hult Prize, backed by contribution size of backers. This increases progress Bill Clinton and the Clinton Global Initiative. towards the campaign target and can boost the campaign’s ranking on the platform’s trending pages. While this small sample makes it difficult to draw An analysis of three reward campaigns supported concrete conclusions and inform future campaign- by the Crowd Power programme found only one makers, and supporters of the sector, observing campaign had support from unknown backers, and this data in the context of wider industry trends and the others were funded exclusively by friends and recommendations is helpful. Based on this evidence family, their extended network, and Crowd Power. For we propose the following recommendations to future the campaign with outsider backing, unknown backers campaign-makers. accounted for 34% of funds raised. Outside backing

16 TOP 5 TIPS FOR START-UPS RAISING ON REWARD PLATFORMS

1. Making the decision to launch a reward 4. Secure match funding to motivate the crowd campaign should not be taken lightly. Put and incentivize backers. Approach high net resources in place well before the campaign goes worth individuals, foundations, philanthropists, live – and PLAN your marketing and outreach. potential investors, and other organisations to The campaign can create 1 – 4 full-time roles over increase visibility and credibility. Match funding the course of the campaign and in the weeks can also increase campaign visibility through its prior to campaign launch. Consider bringing on impact on trending pages. short-term staff and paying them a percentage of 5. Set an appropriate target. This will give you the campaign proceeds to motivate them31. best chance of demonstrating early success to 2. Calculate the costs of fulfilling the reward potential funders. Build personal relationships promise. In some cases delivering on this with your potential funders and make sure there promise can be very costly, particularly when is a large volume of donations in the first few days combined with campaign implementation costs. to build momentum. Even GravityLight found that “financial returns are not substantial given the cost of the rewards”32. 3. Only 2% of successful campaigns raised $100,000 or more, according to Kickstarter, and 73% of successful campaigns raised $10,000 or less. If you plan to go big, ensure you have an appropriate product that appeals to your backers. As one publication put it, “[m]any crowdfunding backers are early adopters going shopping.33”

Crowdfunding’s Non-financial Benefits marginal efficiency – or the relationship between the While reward campaigns are not suitable for all amount raised during the campaign, and the amount organisations, or at all points across the business raised in subsequent financing rounds – diminishes. lifecycle, the non-financial benefits, such as increased While this study looked at the reward crowdfunding brand awareness, partnership building, and improved space as a whole, using data from Kickstarter, we see social media outreach can be achieved – even if similar trends in energy access campaigns we have the campaign doesn’t meet its fundraising goal34. observed and supported. An analysis of reward campaigns by the Office of Advocacy U.S. Small Business Administration found Okra Solar, a tech start-up with operations in that crowdfunding has several non-financial benefits Cambodia, allows families with solar home systems to including increasing the likelihood of partnerships, sell excess energy to their neighbours. They recently gaining publicity, building a customer base, and raised over $45,000 on Pozible, an Australian reward attracting employees. These benefits increase as platform. They successfully reached their target in more funding is raised, up to a certain point35. 20 days and benefited from dollar-for-dollar match funding from the Crowd Power programme. Not only Their analysis also shows crowdfunding impacts did this early stage start-up raise their target, they future financing. Businesses that raised more funds were also able to secure two engineering staff after during their campaign went on to raise larger amounts hearing about the company through the campaign. of external financing subsequent to the campaign. Co-founder Afnan Hannan believes the campaign was However, once the $75,000 campaign threshold an all-round success, “not only financially, but in terms was passed the proportional increase in subsequent of the right people being aware of what we’re doing”. funding began to decline36. In other words, the

17 “Since the campaign, we’ve managed to build our team and develop the prototype, which is in the final stage of manufacturing and will be delivered to Cambodia in 2 weeks! We really couldn’t have done it without the Crowd Power and UK Aid support.” Afnan Hannan, Co-Founder Okra Solar Okra Solar raised over $45,000 on reward platform Pozible The Impact of Reward Campaigns on WakaWaka states they have sold close to 300,000 Energy Access units, which have impacted over 1.2 million people Across all reward campaigns, a significant proportion and saved over $13 million in energy expenditure39. of expenditure is on technical pilots, prototyping, and These are encouraging numbers for backers of their manufacturing. It can take several years for an early- campaigns, particularly as the majority of WakaWaka’s stage company to bring a product to market; therefore capital has been raised from the crowd. While their measuring the impact of a campaign can be difficult. success would be difficult to replicate for companies For example, GravityLight ran their first campaign without a similar business model and product, they over four years ago on Indiegogo but only began have demonstrated that crowdfunding can be utilised commercial sales of their product this year. While they to fund a business through its lifecycle. They have have manufactured various prototypes and distributed also tailored campaigns to achieve specific goals the GravityLight to campaign backers, they launched and effectively target their audience, while gaining their first sales campaign in late 2016 in Kenya. They invaluable media attention to achieve specific goals completed a fifty-stop roadshow across the country and to effectively target. without inventory due to manufacturing issues. At this point it is difficult to determine the impact of the We must also consider that reward crowdfunding is campaign, but we will revisit this in our final report. rarely suitable for local entrepreneurs or projects, or For other start-ups like Okra Solar and Musana Carts, those without an international network of funders. We where their backers are effectively donating seed covered the challenges for local businesses in our capital, it is far too early to see their impact. previous paper Crowd Power: Mapping the Market on the back of infoDev’s report on their work with Kenya WakaWaka has run over ten crowdfunding Climate Innovation Centre entrepreneurs launching campaigns, across donation, reward, debt, and campaigns on Indiegogo40. Reward platforms do equity platforms over the past few years. Many of not offer suitable payment facilities for local backers these have focused on product development and (e.g. mobile money), which can restrict access and manufacturing, however some have been for specific usability. Ultimately the campaigns through Kenya initiatives. In late 2012 WakaWaka launched a buy Climate Innovation Centre were unsuccessful as one-give one campaign on Kickstarter and ultimately a result of unrealistic target setting, poor outreach shipped 12,000 lights to Haiti, where they also set up strategies, and inadequate payment infrastructure an assembly line to employ local women37. A year to support mobile money contributions. As infoDev later they ran a similar campaign, this time through stated in their report ‘[w]hile crowdfunding does the WakaWaka Foundation website rather than a present an opportunity to overcome traditional crowdfunding platform, and provided over 7,000 lights barriers to capital, it is merely a new, technology- to survivors of Typhoon Haiyan in the Philippines38. enabled way to do a very old and difficult thing: raising money from a network.’41 Campaign-makers need a strong network they can mobilise during the campaign, to support the campaign financially and through outreach.

19 KEY POINTS – REWARD CROWDFUNDING

There are two broad types of reward campaigns Match funding can have a strong impact on among energy access ventures. The first type campaign performance as campaign targets is suitable for companies offering an innovative can be reached faster, building momentum. product that backers are interested in purchasing. Dollar-for-dollar matching can be very effective, These are rare but can raise $100,000 to particularly over specific periods of time or up to a $400,000. The second campaign type is usually particular interval. by start-ups raising seed capital from family and DFIs and philanthropists could strengthen friends. These often raise $10,000 to $50,000. opportunities for early-stage ventures by The larger campaign type is suitable for very few, providing match funding for a limited period niche applications, which makes it difficult for of time or up to a certain threshold to build philanthropists and DFIs to engage with these campaign momentum. As we suggest in the campaigns. There have been only two companies previous section, 4.1 Donation Crowdfunding for over the past 5 years that have managed to raise energy access, certified company accounts and/ substantial this way. or proof of purchase may be helpful to reduce The smaller campaign type is more common and risk of misspent funds and/or ‘self-funding’ these are often successful. Reward crowdfunding campaigns. can be a great option for raising small amounts of seed capital to pilot a business concept and product. The campaign-makers network is key; therefore it is rarely suitable for local businesses.

20 4.3 DEBT CROWDFUNDING FOR ENERGY ACCESS

Debt has dominated the energy access crowdfunding In 2016 we saw the rise of working capital loans made space over the past two years. Debt crowdfunding directly to social enterprises. Unlike microloans, these raised $4.6 million in 2016 and accounted for 53% of are larger loans to businesses distributing and/or all crowdsourced funds for off-grid energy projects manufacturing clean energy products. The average and businesses.42 Debt crowdfunding also leads in SME loan on debt platforms was $80,000 and ranged in terms of the number of unique campaigns – there size from $10,000 to $385,000.45 Bettervest, Lendahand, were over 4,000 debt campaigns in 2016, accounting and Trine were the leading platforms for working capital for over 90% of all energy access campaigns.43 Kenya, loans, and raised over $2 million for clean energy Ghana, and Mali are the leading countries for energy businesses. Kiva also launched a pilot lending directly to access crowdfunding, measured by amount raised; social enterprises, rather than going through a partner Kenya, Cambodia, and Nicaragua lead in terms of organization such as an MFI, and offers loans of up to the number of campaigns per country.44 The sector $50,000 to qualifying start-ups. This is an interesting is dominated by microloans, and most of these are leap given the average loan size is less than $500 on on Kiva. Microloans include loans to consumers, co- their platform and may signal an area of growth.46 Kiva’s operatives, and entrepreneurs, and accounted for 55% first energy loan under the pilot was launched at the of debt crowdfunding in 2016, raising over $2.5 million. end of 2016, raising $50,000 to finance PAYG solar units for Zimbabwe-based Zonful Energy; the campaign received match funding from Crowd Power.

Debt Crowdfunding SME Loans 2016

600,000 5 TRINE campaigns Lendahand 500,000 Bettervest

400,000 2 campaigns 300,000 1 campaign 8 2 campaigns campaigns Amount raised ($) 200,000 1 2 campaign campaigns 3 1 campaigns campaign 100,000 1 campaign 0 0 campaigns campaigns 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCTNOV DEC

Total raised across 2016 (=$2.1 million) and total campaigns (26)

Microloans Driven by Philanthropic Agenda of Asia, is vastly different, and is driven by zero-interest Traditional debt crowdfunding is associated with micro lending and triple-bottom line investing47. commercial rates of return. Most of the dominant While limited data is available on the crowd, largely debt crowdfunding models globally – peer to peer due to tight data protection rules across platforms, business lending and real estate crowdfunding – it is broadly understood that those lending to off- depend on financial returns to garner a lender base. grid energy campaigns are driven by more altruistic Debt crowdfunding in Sub-Saharan Africa, and parts motives than those investing in more conventional

21 debt crowdfunding. Microlending in this context may energy access related lending in 2015 and funded be viewed as an extension of charitable giving, but two campaigns. In 2016, Trine and Lendhand also ensures capital preservation. Kiva and Milaap, India’s began lending to off-grid energy businesses. In Q3 largest platform for social causes, have repayment 2016, they had launched their first energy campaign, rates of 97%48 and 99%49 respectively. Microlending and it was fully funded in 48 hours. They launched platform Zidisha, the first direct, global person-to- a total of 15 campaigns by the end of 2016, in Kenya person lending platform has a repayment rate of 88%50. and the Philippines. Lendahand also trialed direct lending, which allows businesses to raise funds from The no interest model has a number of advantages the crowd directly rather than working through partner for platforms, reducing securities law considerations organisations such as MFIs. Lendahand’s CEO, Peter in some jurisdictions and allowing for greater social Heijen, believes investors are drawn to these energy impact. Kiva co-founder and President, Premal Shah, projects because of their direct impact on people’s believes Kiva’s non-profit and zero-interest model lives. ‘Not only do these investments help increase also means, ‘Kiva is able to partner with groups based access to renewable energy, reduce kerosene on social motive, rather than profit motive.’51 Kiva costs, and reduce kerosene-related health hazards, started by partnering with microfinance institutions, investors simultaneously contribute to a sustainable and now works with social enterprises and non-profits environment and they get a financial return of 3 – 6% to facilitate loans. Their direct to social enterprise on an annual basis, paid out every 6 months.’ (DSE) pilot allows vetted social enterprises to raise up to $50,000 on Kiva, without going through partner So far this appears to be a scalable model, when organisations. Recently departed CEO, Martin Tschopp, done with appropriate due diligence and care. Since who joined Kiva after 12 years with eBay believes their SunFunder launched their first crowdfunded solar crowdfunding model ‘fills a critical funding gap faced loan in 2012 – a $4,000 loan to an entrepreneur in by entrepreneurs whose businesses are too young, the Philippines to purchase solar lights and phone too small or too innovative to receive traditional small chargers – through to the end of 2016, they had raised business loans.’52 Kiva has now lent over $1 billion to 2.5 $20 million across 91 loans, and had a default rate of million borrowers since 2005.53 less than 1%55. This includes both crowdfunded loans and Solar Note issues to accredited investors (not Prior to 2016, lending to energy access related small on the crowdfunding platform). SunFunder stated businesses was almost exclusively the domain of crowdfunding allowed them to prove the feasibility of Kiva and SunFunder. SunFunder officially wrapped their business model and the underlying investments. up their crowdfunding operations in 2016 to focus on SunFunder has now closed their crowdfunding raising funds from accredited investors. The platform operations and raises funds exclusively from had raised $437,500 via crowdfunding across 21 accredited investors. loans since its inception in 201254. Kiva has raised several loans for distributors of solar and other energy Due to regulatory restrictions they were previously products over the years, which range from $2,000 to unable to offer interest to crowdfunding investors, $50,000 in size, but with mixed success. Many loans but can do now they work with institutional investors. were facilitated by non-financial institution partners, There have since been changes to US crowdfunding such as social enterprises, without the capacity to legislation (Title III of the JOBS Act) to allow retail act as loan administrators. The failure of a number of investor participation in debt crowdfunding, however these partnerships, resulting from high repayment reporting requirements are prohibitive for many small rates and other loan administration issues, has caused businesses so we are yet to see any major changes Kiva to rethink their approach to these experimental for the sector thus far. SunFunder’s track record of partnerships. strong loan performance, and the growth of the underlying small businesses, helped to close their $50 Triple Bottom Line Crowdfunding million investment fund backed by OPIC, Rockefeller Lenders on the top three platforms for SME lending Foundation, and MCE Social Capital in late 2016.56 – Bettervest, Lendahand, and Trine – appear to be sophisticated, early adopters with a strong interest Although SunFunder has abandoned their in social impact investing and/or renewable energy. crowdfunding operations, the founders of Trine still Bettervest, based in Germany, first experimented with see plenty of room for growth in debt crowdfunding

22 for energy access related businesses, and believe diligence processes, a broader insurance product that both lender (demand-side) and borrower (supply- would likely reduce risk exposure and allow for side) activity is strong. In their first year they lent over diversification. The cost of the guarantee will most $450,000 to six solar businesses, and one project, likely to be absorbed by the lender. in Sub-Saharan Africa.57 For the model to succeed, Trine believes they need to scale up lending and offer Why Get a Loan from the Crowd? multiple loans to performing borrowers. The average Debt crowdfunding raised $4.6 million for energy loan size was $64,000 in 2016, and in late 2016, Trine access focused businesses and projects in 2016, a launched two larger loans averaging $175,000 over significant ramping up of activity since the previous the holiday period. These loans were slower to fund year (81% growth).59 While we are yet to see aggregate and took two months to reach their targets – relative data on off-grid energy fundraising for the year, we to a 28-day average for their first eight loans. Andreas do know that off-grid solar companies raised $122 Lehner believes this is due to ‘the constant balancing million of debt between 2008 and 201560. It’s easy to of campaigns with the size of Trine’s investment see therefore, that crowdfunding is a small part of community’ as their crowd investor base grows. And the overall financing picture. Nonetheless, we believe while SunFunder has made the transition away from debt crowdfunding has a role to play at this particular the crowd, ‘Trine believes strongly in the potential of juncture – particularly for social enterprises unlikely crowdfunding as the market is projected to surpass to raise debt capital from impact investors just yet, the size of VC [venture capital] funding globally’58. and for more mature businesses that struggle to And unlike SunFunder, based in the US, Trine is access working capital from local banks. We must also well positioned to take advantage of Europe’s more keep in mind that this is a nascent space, and energy enabling regulatory environment, which allows retail access debt crowdfunding is growing steadily, and investors to earn interest on their investment – which significantly. can be as small as $30 on many platforms. Generally, investment in the off-grid sector has grown With the growth of working capital loans there is substantially over the past two years, however there increased awareness, and demand for guarantee type is often a mismatch between the desires of investors products and default protection for lenders. A number and the capital needs of potential investees. Russell of initiatives are being explored by platforms and DFIs, Sturm, Head of Climate Change Advisory at the and include the provision of a guarantee of 50% (and International Finance Corporation (IFC) says ‘there is up to 75%) of the remaining loan balance. A number money out there from investors, especially for the of bilateral and multilateral donors are exploring frontrunners who have shown they can deliver returns, options to support the growth of crowdfunding – an but what’s been lagging is working capital’61. While encouraging sign, and one that adds credibility to this investor appetite for a share in promising ‘frontrunners’ space. One of the top platforms for energy access is strong, accessing debt capital is more difficult. related business loans has proposed a broader insurance mechanism, to protect loans across Bettervest, Lendahand, and Trine allow businesses several platform partners. While there are a number to raise larger working capital loans from the crowd of complexities to implementing loan protection and had an average campaign size of $80,000 across multiple platforms, such as differences in due in 2016; Kiva allows social enterprises to raise up to $50,000. Importantly, these platforms allow businesses to consolidate small end-user loans into one larger loan, reducing the administrative burden of Debt crowdfunding raised crowdfunding, as well as providing liquidity. Platforms $4.6 million for energy access like Kiva traditionally require partners to post loans for each customer, which has a higher administrative focused businesses and burden than bundling loans into one larger loan projects in 2016, a significant that can capture hundreds of individual loans. This ramping up of activity since the is an important step as access to consumer lease previous year (81% growth). financing is the number one barrier to growth cited by solar businesses.62 Since late 2016, there have been a number of campaigns of this type including by

23 Zonful Energy on Kiva ($50,000), which raised finance Potential of Debt Crowdfunding for solar home systems, and SimGas on Lendahand to Reach Scale ($108,000), which will provide loans to farmers to Debt crowdfunding appears to be the most scalable install biogas systems. of all crowdfunding types for the off-grid energy space. There are two areas of growth within debt This trend reflects the needs of small PAYG solar crowdfunding; the first is the modestly growing companies and the lack of capital available for microloan space, and the second is rapidly growing consumer lease financing. In late 2015, the sector’s directly to energy businesses – which experienced first securitisation deal was completed and raised rapid growth over the year. Kiva, Zidisha, and Milaap $500,000. BBOXX issued local currency denominated are the largest microlending crowdfunding platforms notes to Oikocredit, secured by the unpaid portion of globally and have an average repayment rate of 2,500 BBOXX solar systems in Kenya.63 The first issue 95%66. Both Kiva and Milaap rely chiefly on partners had an average maturity of 2.5 years and an interest to source loans and carry out borrower due diligence. rate of 21%.64 While an exciting step for the industry Zidisha on the other hand, provides loans directly (with another $1.5 million bond issue scheduled for to borrowers through the platform and utilises a 2017), the cost of starting a securitisation programme graduated loan scheme to reduce risk exposure; is only an option for mature companies planning entrepreneurs start off with a small loan, and if repaid multiple issues. For less mature social enterprises with sound repayment history, subsequent loans that have refined their business model and are increase in value. Lenders are drawn to these loans as looking to pilot or expand end-user financing, debt they have a tangible impact, being mostly consumer crowdfunding is the obvious choice due to the finance loans for individuals to purchase a solar home challenges of accessing finance prior to reaching system or energy efficient cookstove – or a working scale. capital loan to a distributor for a specific product and number of units. We expect energy access For social enterprises like Nuru Energy that focus microlending to increase modestly over the short on energy access for the ‘poorest of the poor,’65 to medium term, particularly peer-to-peer lending crowdfunding allows them to raise zero-interest, and microloans via MFIs, however as we’ve already risk-bearing capital, where few other opportunities seen, the administrative burden of posting microloans exist. Their Kiva partnership means they can test means it is unlikely to be a scalable solution for many approaches to distributor financing and build a track social enterprises. record, which could help them raise capital in the future. Nuru Energy has raised over $80,000 across Working capital loans to social enterprises grew 10- 590 loans, with an average loan size of around fold in 2016, raising over $2 million. Bettervest raised $140. The partnership doesn’t appear to be without close to $1.1 million, Lendahand raised $550,000, hiccups however, and we observed that no loans and Trine raised over $450,000 in working capital. were made on the platform between August 2013 SME-lending as a percentage of debt crowdfunding and May 2016. The loans also changed significantly activity grew from less than 10% to 45% of all debt over this period; the earlier loans were around $100 crowdfunding. All three platforms offer investors with one repayment at the end of a 14-month term, competitive rates of return, and Bettervest and Trine in while the later loans were closer to $300, had irregular particular have strong impact metrics. Both platforms repayments, and durations over three years. The clearly stipulate the number of people impacted by partnership likely allowed Nuru to adjust their loan the campaign and tons of CO2 reduced. Additionally, terms based on their initial experience. Nuru Energy many Trine loans are disbursed directly to the product currently has a delinquency rate of 0%, but we must supplier reducing the risk exposure. also consider that only 16% of total borrowings ($12,850) had been repaid at the time of writing this report. It may be too early to tell if this is an effective Debt crowdfunding appears way of raising finance. Some other social enterprises to be the most scalable of all have wrapped up their partnership due to the difficulties of administering end-user and distributor crowdfunding types for the loan schemes. We provide more detail on this in our off-grid energy space. first paper,Crowd Power: Mapping the Market.

24 Interestingly, we are yet to see peer-to-peer business As we mentioned earlier, 2016 was a transformative lending emerge in Africa – despite the fact that debt year for energy access related debt crowdfunding. and equity crowdfunding accounts for the largest Lendahand began lending to energy businesses in proportion of funds raised globally, and that Kenya emerging markets, the Trine platform was launched in particular is a ‘hot bed of innovative alternative and funded seven loans in its first year, and Kiva financial services’.67 Crowdfunding within Africa is began lending directly to social enterprises. Bettervest limited, and currently Western backers drive the flow also grew their energy access activities and raised of funds into Africa-focused campaigns. We may over $1 million, giving them the largest market share. therefore start to see increased activity in this area, Crowd Power is working with all four platforms to particularly if regulatory bodies begin to adjust their support energy access related campaigns with match frameworks. funding, gift vouchers, and first-loss guarantees on approved loans. The results have been strong in terms The role of match funding and of attracting funding from the crowd, however we first-loss protection would caution that interventions in this space should Match funding on debt platforms is a little more be proportionate to the size of the market, which was complex than for donation and reward platforms, around $4.6 million for debt crowdfunding in 2016. for donors wanting to support campaigns. Funds contributed to donation and reward campaigns are So far we have concluded that match funding is not re-paid, however for debt campaigns match effective for microloans, such as those on Kiva, and funding contributed by a donor will be returned, there is a lower risk of self-funding, even with dollar- provided there is no issue with repayments. The donor for-dollar matching (compared to donation and reward must then decide what to do with these proceeds. campaigns) as these loans are smaller and are made Prior to Crowd Power, there were few examples of via vetted partner organizations. Often, they also charge match funding on debt platforms, and match funding interest, which discourages this kind of behaviour. was mostly encouraged on donation platforms. Nevertheless, Kiva has a high funding rate generally Kiva has the most developed match funding activity and while supported loans may fund more quickly with of any platform. In 2014, the platform raised $2.9 match funding, most loans that appear on the platform million in one day – ‘Million Dollar Match Day’ – with will be fully funded within the 30-day funding window. match contributions from Google and Grameen- The perceived ‘additionality’ of match funding may Jameel Microfinance68 among others. Omidyar therefore be limited, unless targeting a specific loan Network, Pearson, and PepsiCo Foundation have also type such as experimental loans (e.g. Direct to Social contributed to various match funding initiatives over Enterprise loans) to those in countries/regions that the years. The impact of match funding on individual have difficulty attracting funding. However, we should campaigns’ time to fund is not available, however also consider that higher funding rates can increase the total amount raised over specific periods where the volume of new loans on the platform, increasing matching is available shows a sharp increase in overall funding raised. Energy access related loans on lending over this period. For example, Million Dollar Bettervest, Trine, and Lendahand also appear to be Match Day raised over 8 times the amount raised on a in high demand, with both matched and unmatched typical day.69 loans funding quickly. For this reason, match funding at around 25% of the campaign target should be sufficient.

GIFT VOUCHERS

Gift vouchers are offered to existing and potential lenders to attract investment. These are issued as coupon codes on ‘influencer’ blogs and/or podcasts, as well as through specific landing pages promoted on the platform’s website. We have experimented with various types of vouchers, including bonuses for attracting a friend to the platform, and vouchers for certain levels of investment. We have also provided ‘no string attached’ vouchers, which allow new investors to contribute only the $25 issued.

25 Our experimentation with gift vouchers supporting First-loss guarantees also appear to have a significant specific campaigns is still early, however some impact on lender behavior, with several Trine lenders patterns are emerging. The usage rate of gift vouchers commenting that this was a factor in deciding how much can be quite low, we therefore advise targeting to invest. Crowd Power provided first-loss protection, numerous, but specific, audiences. This may include protecting 10% to 50% of the crowd’s investment, on friends of existing lenders, as well as online groups, a declining balance basis70, across various loans. For bloggers, and podcast hosts geared toward off-grid DFIs and philanthropists this can be a cost-effective energy, renewable energy, or social finance. One way of making an impact in the debt crowdfunding platform experimented with a dedicated landing page space and can diversify risk by supporting a number of for voucher users, and had a high conversion rate. campaigns. We found protection remains effective even Others have applied different coupon codes to various at 10% and 25% of the campaign target. The benefit of podcasts and blogs and found that vouchers can protection is that it also gives funders and platforms generate over 35 times the amount of the voucher in flexibility to allocate funds to other projects where funds investment. are not utilised, and to support philanthropic activities (many platforms have a non-profit arm that supports community projects, for example).

DFID AND VIRGIN UNITE TO HELP CROWDSOURCE END-USER FINANCING THROUGH NEW PEER-TO- PEER SOLAR LENDING PLATFORM

In order to expand the role of crowdfunding in The loans will be used by these companies to financing energy access, DFID and Virgin Unite are finance the provision of credit to end users, and will supporting a new initiative, Energise Africa, that is be repaid over a time period that mirrors payments establishing a lending crowdfunding platform to by these end users. Linking investors to specific raise debt from the UK crowd to finance companies customers would be very complex and expensive, selling solar home systems in Africa. This initiative and violate customer privacy, so the platform instead is being delivered by a joint venture created by two uses case studies and other data to enable the existing crowd funders - Ethex, a UK based non- crowd to track the benefits their investments are profit social impact savings and investment platform, delivering. and Lendahand, the Dutch social venture already supported through Crowd Power. A beta version of Lendahand Ethex Ltd aims to raise $20 million over the platform will go live in 2017. The platform will the next three years which if achieved would greatly launch to the public in late 2017. increase the contribution of crowd funding to the energy access sector. The aim is to create a venture, Lendahand Ethex Ltd will work with established which becomes self-sustaining without the need for solar home system businesses to help them raise ongoing donor support. debt from the UK crowd. Investors earn interest but also invest at risk. The borrowers are able to secure financing at competitive rates and Lendahand Ethex Ltd will provide some buffering of foreign exchange risks. The platform conducts its own due diligence on borrowers, supported by INRISC credit assessments.

26 HOW CAN DFIs HELP DEBT PLATFORMS CLOSE THE FINANCING GAP? ‘The energy access market is entering a stage in 2. Provide debt guarantees, including first-loss which DFIs can start to help attract private capital positions and match funding, to reduce financing into the market as the industry matures. In order to costs and leverage private capital into the market. have the highest impact, they can help to reduce the We have seen that such instruments increase cost of working capital. In our experience there are the funding time and the number of investors per two ways to do this: campaigns, as well as the likelihood of funding. 1. Allocating funds to hedge forex risks for entrepreneurs as this is often stated as one of Andreas Lehner, Co-founder Trine the biggest risks for lenders, but is currently too expensive to implement without the support of development finance institutions.

27 KEY POINTS – DEBT CROWDFUNDING

Debt crowdfunding for off-grid energy business Match funding is most effective when utilised at and projects is dynamic and evolving; Bettervest, a specific milestone or up to a particular interval Kiva, Trine, and Lendahand dominate the space. in the campaign. Matching above 25% of the All platforms now offer loans directly to social target tends to become less effective due to the enterprises, rather than exclusively through local higher amount spent on matching. Microloans partners like MFIs. are commonly matched dollar-for-dollar (50% of Philanthropists and DFIs could make cost- target) and this is a good way to build campaign effective impact in the sector, particularly momentum for a specific initiative (e.g. Earth through first-loss guarantees. Guarantees can Day) or trial new loan types (e.g. Direct to Social be split across a group of loans to reduce risk Enterprise). This can be a less cost-effective and increase value-for-money from a donor approach though. perspective. Crowdfunding regulation in Europe allows platforms to offer interest to lenders, and this enabling environment is a key component of Trine’s growth.

28 4.4 EQUITY CROWDFUNDING FOR ENERGY ACCESS

In 2016, there were three equity crowdfunding growth and an incredible development for equity campaigns by companies working in the off-grid crowdfunding. It comes on the back of strong energy space. These campaigns raised over $3.3 industry-wide growth in equity crowdfunding as a million – almost as much as the amount raised across changing regulatory environment paves the way for all debt, equity, reward, and donation campaigns more platforms, and campaigns, to enter the market. the previous year71. In our last report, we signaled In 2016, much awaited rulings on non-accredited equity crowdfunding as an area of growth following investor participation in equity crowdfunding (JOBS successful campaigns by UK companies Buffalo Grid Act Title III, IV) were rolled out in the US. There were and Renovagen on Crowdcube. However, due to also changes to regulation in Europe, allowing start- the high variation in the amount of funds raised each ups and SMEs to raise up to €1 million ($1.1 million) quarter in 2015 and 2016, and no growth over the first without issuing a prospectus72. Globally, more flexible two quarters of 2017, we believe equity crowdfunding regulations – from the UK to New Zealand, and Israel is unlikely to reach significant scale and stable growth to Singapore73 – have bolstered the industry. in the short term. We will likely continue to see ebbs and flows in the number of transactions. We should So why do we suggest being cautious in the context also keep in mind that large transaction sizes, relative of this dynamism and growth? We must consider that to the size of off-grid energy related crowdfunding, the equity crowdfunding deal flow for off-grid energy can at times distort perceptions of the scale of equity is very thin. In 2016, there were 6 months (from May crowdfunding. It is important to consider the frequency to December) in which there were no off-grid energy of these transactions, as well as the volume. equity campaigns. Campaign size is also highly variable, ranging from around $75,000 to over $1.4 Off-grid Equity Crowdfunding Grows million over the past two years. There are too few Exponentially deals for us to make any predictions on the future In 2016, three large off-grid energy equity campaigns of equity crowdfunding over the short-term, other raised as much as the entire off-grid crowdfunding than that it is likely to continue to be characterised space in 2015; Renovagen, Buffalo Grid, and by infrequent deals of varying size. We therefore WakaWaka raised over $3.3 million in 2016. In 2015, anticipate that there will be high year-on-year (and there was only one campaign – by Trine – which particularly month-on-month) variability in the growth raised $75,000. On the face of it, this is sensational of equity crowdfunding.

Energy Access Related Equity Campaigns 2015 – 2016

2,500,000

2,000,000 TRINE Buffalo Grid Renovagen 1,500,000 WakaWaka

1,000,000

500,000 Amount raised ($) 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2015 2015 2015 2016 2016 2016 2016

Due to volatility of GBP/USD and EUR/USD in 2016, we have used the exchange rate at day of close of campaign

29 There is potential for DFIs and philanthropists to The low number of deals, and infrequency, may also engage in the sector by strengthening the quality reflect a lack of market awareness as few companies and number of pipeline deals. This could involve or existing project developers consider crowdfunding virtual incubation programmes, engaging in match as a viable option. There is an opportunity for an funding or gift voucher issuance, and engaging with increased role of donors to educate the market, regulators to create a more supportive ecosystem. and assist entrepreneurs to get ready for equity They could also play a role in the development of investment. Additionally, there may be an opportunity dedicated platforms for social enterprises and/or for intervention by working with existing project local businesses. developers (e.g. mini-grid developers) to supplement existing financing with crowdfunded equity (and debt). Is Equity Crowdfunding a Last Resort? Crowdfunding has the added benefit of building Perhaps one of the reasons for a variable pipeline awareness and can be a good tool for promotion of deals is that equity crowdfunding can be a last and marketing. We have seen campaigns for resort for off-grid energy companies, unable to raise specific infrastructure projects on debt platforms like funds from institutional investors and other impact Lendahand and Bettervest, however equity platforms funds. But some companies, like WakaWaka, chose have not yet been utilised for this purpose. equity crowdfunding over traditional investors as crowdfunding investors do not dilute control to While there are too few equity campaigns to the same extent74. Crowdfunding can also be used showcase or forecast trends, there appear to be some to supplement an investment round. This is not common themes among the campaigns we have necessarily because these companies are not viable observed as well as campaigns we know of that were investments; it is likely a reflection of the mismatch in development but ultimately didn’t launch. of start-up capital needs and the amount, and type, of investment capital available to companies. Raising finance can be tough for companies without a refined product and a strong record of sales growth and/or high customer repayment rates.

TOP 4 EQUITY CAMPAIGN TRENDS

1. All the campaigns that were successful are by 3. Across the four campaigns there were three companies based in the UK and Europe and were different financing structures; equity shares, backed by investors on platforms in the UK, the convertible notes and an equity investment into a Netherlands and Sweden. project entity (Special Purpose Vehicle) that lends 2. Two of the four campaigns in 2015 – 2016 had to a project developer. run successful equity campaigns previously, and 4. Of the two campaigns offering company shares to for one of these (WakaWaka) this was their 10th investors the average equity on offer was 28.96%76. crowdfunding campaign75.

Of the three campaigns that funded in 2016, Crowd ended up raising double the initial target, raising close Power supported one campaign, by Buffalo Grid, with to $700,000 (£496,000). Interestingly, a month prior a £20,000 ($27,000) lump-sum contribution at the to Buffalo Grid’s launch, Renovagen, which produces 50% raised milestone (see graph below). It is difficult portable off-grid solutions, raised $1.35 million. Their to draw conclusions on the impact of this contribution. campaign did not receive backing from Crowd Power, While we saw a corresponding increase in investment yet raised close to double its target also. This signals after our contribution, this is not unusual once strong investor demand for these types of raises. campaigns raise 50% of their target. The campaign

30 We have also been privy to a number of campaigns, investors, particularly at an early-stage, can dilute which did not ultimately launch. From this experience, management control and make a start-up unattractive and in our dealings with equity platform partners, we to future investors. There are ways around these have noted the high dropout rate of equity campaigns complexities for start-ups wanting to raise funds, by in the pipeline. We have seen a number of campaigns limiting voting rights to investors or establishing a dropped at the last minute due to an investor re- SPV. This effectively limits the role of the crowd in the entering negotiations or a new investor stepping in, company – although this measure has drawn criticism which tend to be high net-worth angel investors rather for the lack of protection offered to the crowd. There than impact funds or family offices – which often have is also the risk of public failure, which could be much longer due diligence processes. embarrassing at best and detrimental at worst. Even if the campaign is a success, companies must keep High drop out rates are common across equity in mind that their failures will likely be public and it crowdfunding platforms. This could be due to will be more difficult to contain investor criticism – we the complexities and uncertainties of equity must remember that investing in start-ups is a high- crowdfunding. Some argue that having many risk activity after all.

Buffalo Grid Campaign Performance 2016

£600,000

£500,000 ) £400,000

£300,000

£200,000

Amount Raised (£ Crowd Power contribution £100,000

£0

29 Jan 05 Feb 12 Dec 19 Feb 26 Feb 04 Mar 11 Mar 2016

31 “The key goal was to develop the BuffaloGrid Hub for mass production. The design is now finished and the first batch of mass-produced hubs is reaching us mid-2017.” Daniel Fogg, Co-founder Buffalo Grid Buffalo Grid raised close to $670,000 in on equity platform Crowdcube CAMPAIGN RECAP: WHERE ARE THEY NOW? BUFFALOGRID

The Campaign Q&A Platform Crowdcube How did Buffalo Grid utilise the funds raised Target £265,000 during the campaign? Amount Raised £496,000 The key goal was to develop the BuffaloGrid Hub for Was this Buffalo Grid’s first campaign? Yes mass production. The design is now finished and the first batch of mass-produced hubs is reaching us in The Company Q2 2017. Profile Why did you decide to go to the crowd to BuffaloGrid sells mobile power through the raise equity? BuffaloGrid Hub – a battery system allowing We believe in the power of the crowd, we didn’t just customers to charge a phone and connect to the secure the funding we needed we won a network internet. Their customers use this power to stay of investors with a large range of skills that have connected. Customers pay for these services using helped us along the way. Premium SMS, M-Pesa (mobile money) or cash. They provide Hubs to local agents free-of-charge, and What did you do in preparation of and during the agents sell mobile power through the Hub to their campaign to generate interest? community. The revenue generated from these sales We held events, one to one meetings with investors is shared with the agent, and the cost of the Hub is and secured some press coverage. covered after 6 to 9 months of operation. Each Hub can run for over three years. Were you surprised by the success of the campaign? Founded 2011 Yes. Countries of Operation India, Uganda Capital raised since founded How do you think this campaign has impacted Grant capital £506,000 the business? Debt & Equity £926,000 The campaign has given us the funds needed Revenue to scale. Without this money we could not have Pre-revenue taken the hubs into production and without hubs in production, we cannot make large-scale deployments. It is essential for our growth.

33 KEY POINTS - EQUITY CROWDFUNDING

Equity crowdfunding was the highest growth Funders and DFIs could play a role educating area of energy access crowdfunding in 2016, social enterprises and project developers and measured by funds raised (48 times the previous how they may incorporate crowdfunded equity year). There were only three campaigns in total. (and debt) into their financing structures. Campaigns are infrequent and irregular, which Successful raises tend to be by companies with a may be due to a lack of market awareness and novel technology and a well-developed network. promotion of crowdfunding for energy access. Much like the larger raises on reward platforms, This also makes it difficult to identify particular equity raises are suitable for companies with a trends such as the amount raised, the platforms specific profile – novel product, strong investment chosen and campaign frequency. materials and pitch, and well developed network. There is a role for funders and DFIs to play in incubating these companies.

34 CROWD POWER 5.0 PROGRESS

What is Crowd Power? What has happened so far? Crowd Power is a programme run by Energy 4 At the time of publication we had launched over Impact and was set-up with the intention to fund 30 campaigns, deploying over $500,000 into debt, and research energy access related crowdfunding. equity, donation, and reward campaigns targeting We have a research and innovation budget of $1 energy access. We are working with eight platform million to support various debt, equity, donation, partners – Kiva, Trine, Lendahand, Bettervest, and reward campaigns through various incentives M-Changa, Global Giving, Pozible, Oneplanetcrowd, – match funding, lump-sum contributions, gift and Crowdcube. The campaigns we have supported vouchers, and first-loss protection (guarantees). We raised over $2.5 million. Over half the funding was are also researching market trends and the growth of deployed as match funding and 20% of funding was crowdfunding within the off-grid energy space. This is allocated as first-loss protection to protect lenders the second paper in a series of five papers that will be from default. First-loss funding that is not drawn down published over the course of the programme, ending will be recycled through new energy access loans or March 2018. fund community energy access initiatives managed by our platform partners (and associated foundations).

Equity 6%

Donation 24%

Crowd Power funding by campaign type Debt Total spend First-loss 19% 59% $500,000 Reward 10%

Crowd Power Gift vouchers 7% funding by incentive type Total spend $500,000 Lump sum 9%

Match funding 65%

35 We did a lot of work before launching the campaign to tailor our story, produce a good video and to engage our network to be sure they will give. We spent time marketing the campaign and sending the right message to our network. Natalie Bitature, Co-founder Musana Carts Musana Carts raised over $27,000 on reward platform Indiegogo 36 CROWD POWER CAMPAIGN SNAPSHOT MUSANA CARTS

“The Solar Street Vending Revolution” FOUNDER Q&A Musana Carts designs solar powered street What was the status of Musana Carts operations vending carts for entrepreneurs with roadside prior to the campaign? stalls in Kampala, Uganda. Three friends, who met Prior the crowdfunding campaign launch, Musana while attending Hult International Business School, Carts was at the very early prototyping stage, we founded the start-up. (the two co-founders) conducted field research for two months to understand the market and develop Platform Indiegogo75 the product. Now, we have 10 carts in Kampala Launch May 3, 2016 and we are working on the third iteration of the cart Close May 27, 2016 design and functionality. We aim to have a Minimum Viable Product by the end of the year, after scaling Target $25,000 our pilot to 50 carts. We now have one full-time Raised $27,288 employee in Kampala, and two volunteers. Number of funders 152 Average contribution $180 What were your options for raising capital and Crowd Power Contribution $2,500 why did you decide to go to the crowd? Our options are investors, grants and crowdfunding. The Company We have chosen grants and crowdfunding for now. Founded 2016 Firstly, crowdfunding when Musana Carts was early Countries of operation Uganda stage and high risk as we could ask our network, Capital raised since founded and then grant money because we need further Grant capital $35,000 funding for the design aspect and to refine our Debt & Equity $35,000 business model. Revenue 2016 $1,000 Who contributed to your campaign and why? Mainly friends, family, faculty members, Ugandan businessmen and UK Aid. The main benefit of the UK Aid funding is the follow-up, which keeps us accountable for what we are doing.

What did you do to prepare for the campaign? We did a lot of work before launching the campaign to tailor our story, produce a good video and to engage our network to be sure they will give. We spent time marketing the campaign and sending the right message to our network.

How did you spend the funds raised during the campaign? We spent $15,000 on research and development and the remaining funds were spent on the production of the 10 prototypes ($1,000 each).

37 CROWD POWER CAMPAIGN SNAPSHOT TOUBA SOLAR RAMA

“Solar home systems for families Q&A around Kedougou” Tell us about Touba Solar Rama’s operations prior Touba Solar Rama designs solar solutions and to the campaign. services for low-income off-grid rural African Before the campaign, the company was facing communities. They have launched a Pay-As-You- irregular incomes. We could have one big project, Go (PAYG) solar project, which integrates solar but after the project is delivered, we could stay energy and mobile payment services for remote another month without having a new project. Since areas. They offer customers solar systems on a low raising funds on Trine we have launched the PAYG cost 24-month payment plan, with an initial deposit solar project, and our cash flows are constantly followed by monthly repayments, via mobile growing month over month. money. Their PAYG solutions aim to empower female rural entrepreneurs by giving them access What were your options for raising capital and to clean and affordable energy by giving them why did you decide to go to use Trine? access to energy for their daily activities but also to We wanted to try different funding avenues with become distributors of PAYG solar systems within less intricacies and bureaucracy. We were never their communities through energy centers. satisfied with local commercial banks as they always asked for thousands of warranties, before being Platform Trine funded. Contrarily, the experience with Trine was Launch June 25, 2016 so positive; within a short time (less than 3 months), Close July 13, 2016 Trine could raise €32,000. Their trip to our PAYG customers in rural areas was a decisive moment Target $35,000 and we decided to go for the campaign and change Number of funders 48 the lives of thousands of underprivileged people. Average investment $740 Crowd Power Contribution How did you spend the funds raised during 50% first-loss protection, declining balance the campaign? (up to €16,000) From our initial 10 PAYG solar home systems funded The Company by Touba Solar Rama, with funding from Trine we Founded 2007 could extend our service to 10 other villages with Country of Operation Senegal about 200 PAYG systems. Capital raised since founded €32,000 raised on Trine. How do you plan to raise growth capital over the Revenue next few years? 2015 $43,000 We still need funding to scale up. We are still happy 2016 $48,000 with Trine and hope to partner again for another loan. Personally, I think our consistent cash flow will probably convince bankers to have a different view of our company in the future.

38

6.0 RISK ANALYSIS

All crowdfunding backers are exposed to risk. The Our main recommendations to funders and platforms type of funding raised, the specific platform model, looking to mitigate these risks are: and platform due diligence practices, all have an influence on the risks, and level of risk, associated • To request invoices, and corresponding bank with the campaigns. Overall fraud risk, i.e. posting statements, from organisations over the campaign a fake campaign, appears to be very low and has period to identify possible proxy contributions, and been estimated at less than half a percent78. But to ensure funds are utilised in accordance with the there are some unique risks for campaigns that campaign description. receive match funding; those that have funds from • To cap match funding at 50% of backer ‘the crowd’ matched at various levels by a partner contributions (25% of the campaign target) for non- organization or individual. Under Crowd Power, we microloan/micro-donation campaigns to reduce have tested matching the crowd’s contributions risk of ‘self-funding’. at 100% and 50% of their contribution. By working • To cap lump-sum and match funding contributions with platform partners, we have tested a number of at a specific monetary value that is consistent different incentive-types, other than match funding, with the average size of campaigns (or relevant to encourage investment and contributions including campaigns) on the platform. first-loss protection on loans, gift vouchers for redemption on specific campaigns, as well as lump- The risk of self-funding is much lower on debt and sum contributions to campaigns. equity platforms as there is less incentive given borrowers and investees enter into legally binding The main risk for match funders, particularly for agreements and may be paying interest. Likewise, contributors to donation and reward campaigns, is grassroots organisations raising funds from Europe that the campaign-maker ‘self-funds’ the campaign and North America-based platforms often don’t to take advantage of the match funding. This can have the resources to inject their own funds into be particularly problematic where match levels are a campaign. Platforms such as Global Giving and high, at say 100% of backer contributions, and we Kiva conduct annual or biennial due diligence on found lowering match funding to 50% of backer partners, which usually reveals irregular spending. contributions lowered this risk considerably. Self- Other platforms, like M-Changa, conduct routine due funding is when the organization running the diligence on contributions above a certain threshold campaign uses its own capital to leverage the grant prior to releasing funds. offered by the match funder, through personal contributions or via proxy. Founders may ‘donate’ cash from the business’s balance sheet to activate matched funds; others may use friends or employees as proxies by transferring personal or company funds to their accounts. Platforms that allow early withdrawals, while match funding is still active, may pose an additional risk. We have found, however, that platforms are highly co-operative and flexible in implementing changes following these learnings.

39 Pros & Cons of 4 incentive types

PROS CONS Match funding • Builds momentum during donation and • More complicated to implement on debt and equity reward campaigns platforms as treatment of funds repaid (and return/ • Incentivises campaign-makers to strengthen interest) must be established outreach strategy • Increased likelihood of ‘self-funding’ where match levels are high Lump sum • Builds excitement by providing a fresh injection • May not ramp up activity like match funding as a one- of capital off payment • Simple to implement for platform and donor • Funding is typically not repaid Gift vouchers • Utilisation often tied to co-investment or co-donation, • More complicated for platforms to implement increasing flow of funds • Difficult orf donors to track redemptions • Reported multiplier (gift voucher vs total amount • Utilisation rates were low on donation platforms during contributed) appears to be higher than all other a Crowd Power experiment incentive types First-loss guarantee (debt only) • Lenders have reported that the guarantee has a strong • In an early stage of development so we are yet to see impact on the decision and the amount to invest learnings • Can be efficient tool for donors as there is not a strong • Can be complicated for a platform to administer likelihood of it being called on • Can be time consuming to set-up and can lead to • Unutilised funds can be reallocated to other campaigns longer approval times from donors/regulators • Can increase the cost of the loan or reduce return for investors if fee is charged

40 TYPES OF RISK

There are several risks to be aware of as a technology aiming to detect illegitimate campaigns. campaign-maker, campaign-backer, or donor This assumption may also be strengthened by looking to support off-grid energy access the funding patterns evident in campaigns we’ve crowdfunding. These vary by platform and capital analysed that show family and friends make up the type and include fraud, default risk, misuse of funds, majority of contributions from the crowd – they have self-funding risk, and non-delivery of reward. One therefore done their own due diligence, outside the must also consider the nature of start-ups and the platform. There appear to be few cases of misuse underlying failure risk. of funds across the energy access space, at least at a scale that is obvious, however it is important Failure & default risk is relevant mainly to equity to note the lack of transparency on campaign & debt campaigns. Failure risk applies to equity spending. While most campaigns post regular campaigns and is the risk of a company failing. progress updates, some campaign-makers appear Investing in start-ups is risky and well documented; to get away with not posting much at all. Whereas, investing in start-ups in emerging economies is campaigns on debt platforms provide lenders with likely to carry extra risk. A high default risk refers much more transparency. to the risk of the borrower defaulting on the loan and not meeting their repayment obligations. For Self-funding risk is particularly relevant to donation microloan platforms, which dominate debt off-grid campaigns that employ match funding – funding energy crowdfunding, the risk is low with repayment offered by a charity or philanthropist to stimulate rates for most platforms between 95% and 99%79. fundraising. Contributions are usually matched at Repayment rates on working capital loans show 100% or 50% of the crowd’s contribution. Match sound repayment rates so far, yet it’s important to funding is mostly used for donation, reward, and consider many of these loans were made within debt campaigns. In some cases the level of match the last year. One of the earliest borrowers on funding can distort the incentives of a campaign- Trine defaulted after going into liquidation, and maker and as we highlighted in 4.1 Donation due diligence was subsequently adjusted by the Crowdfunding internal funding may be used to platform. We anticipate the next two years will be access match funding. A campaign-maker could a period of learning for platforms as they branch also strike a deal with friends or employees to out beyond business as usual. We would expect ‘donate’ to the campaign, and return their funding specialist platforms i.e. those focused specifically on with interest at completion of the campaign – once energy or health for example, to adapt most quickly they have secured the match funding. Match funding as they understand their market more intimately than should be appropriate for the platform. Matching at broader platforms. 25% of the campaign target is likely to be appropriate in most contexts. Additionally, requesting invoices Misuse of funds refers to the risk that proceeds and proof of payment to ensure campaign-makers from the campaign will not be used for the intended are accountable for the proceeds is important. purpose, and are spent on unrelated activities. This risk is mitigated in different ways and is related to the Non-delivery risk is relevant to reward campaigns. type of capital raised and platform risk management The risk can impact campaign backers as well as practices. Platforms such as Global Giving and Kiva the campaign-maker, where there are delays in audit their partners on a periodic basis to check for product manufacturing. The main risk is that the irregularities in spending or loans. Many platforms campaign-maker will be unable to fulfill the promise are very low touch however, including Indiegogo to the crowd of providing the reward – typically the and Kickstarter, allowing almost anyone to launch first iteration of the product. This can be because a campaign. Their assumption is that the crowd the business has folded, but may also be due is discerning, and each platform has developed delays in production – which is not uncommon as

41 new products come to market and product testing Financial-loss is the risk to campaign-makers of is continuing. The cost to campaign-makers of investing funds preparing for a campaign that is managing the crowds’ expectations can take its toll unsuccessful. Campaigns can be expensive to on ‘customer’ satisfaction. prepare for with the cost of preparing audiovisual material, pitch-decks, and financials, as well as Reputational risk is often associated with a ‘failed’ hiring staff to assist during the campaign. Campaign- campaign, however this may not always be bad makers must also consider the cost of time and news because of the non-financial benefits to resources being directed away from core business crowdfunding. Nevertheless, many start-ups find activities. From our discussions with various the possibility of such a public failure daunting and campaign-makers there appears to be a strong may utilise crowdfunding as a last resort. This risk is relationship between campaign preparedness and likely to have some positive implications however, the success of the campaign, which lowers financial- and forces campaign-makers to be thoughtful and loss risk substantially. realistic in putting together their campaign message and target. There is also the reputational risk of ‘successful campaigns’ being long-run failures if the business goes into liquidation or folds for whatever reason.

42 7.0 CONCLUSION

Crowdfunding for energy access businesses and Debt crowdfunding dominates the market and projects is still at an early stage, and is often poorly is where we see the most potential for growth, understood. Investors often dismiss it as irrelevant scale, and impact. There is potential for DFIs and relative to the size of the overall market, and philanthropists to make an impact through the entrepreneurs may show undue excitement about provision of match funding, gift vouchers, and first- the prospects of raising funds from the crowd. While loss guarantees via relevant platforms. There is also crowdfunding accounts for a small percentage of all an expressed need for hedging instruments to cover financing raised for off-grid energy it has a particularly foreign exchange risk. It’s important to bear in mind important role in a number of areas. that the pipeline of potential borrowers is still relatively small, and that interventions should be in line with the Donation campaigns allow community organisations size of the debt crowdfunding market – about $4.6 to raise donations and reach poorer communities, million in 2016. and indigenous platforms like M-Changa allow local entrepreneurs to start businesses by aggregating Equity crowdfunding had impressive growth in 2016, funds from family and friends, and other partners. however we must consider that there were only These campaigns are particularly important for three campaigns over this period, which may distort supporting grassroots work, and marginalized growth data. Nonetheless, support from DFIs could populations, which are unlikely to be natural assist to build awareness among entrepreneurs, customers for for-profit businesses. Reward platforms incubate potential investees, and create better legal are important for energy access start-ups that have frameworks to bolster platform growth. Up to this an international team and network; they can utilise point, energy access related equity crowdfunding has reward platforms to raise seed funding from family been on UK and European platforms, however we and friends, and extended networks. anticipate changing regulations in emerging markets will mean, over the next few years, more equity crowdfunding will involve the participation of local businesses and investors.

43 Notes on Data Sources The data in this report is referenced with footnotes throughout. Data indicated as ‘Crowdsurfer and Energy 4 Impact aggregate data, 2016’ was analysed and collected by Energy 4 Impact, and uses data sourced through Crowdsurfer, Crowd Power platform partners, and our own market knowledge. Aggregate data for the energy access market segment is difficult to obtain, and we have done our best to source and collate available data. We have also partnered with the Cambridge Centre for Alternative Finance (CCAF) to gain access to industry wide data. We will be working with them to obtain further geographic and industry specific data for future reports in this series. We have endeavoured to capture all relevant campaigns through these methods. Finally, it is worth noting, as an organisation we have stronger market knowledge and presence in Africa than we do in Asia, and while we believe we have captured all relevant activity pertaining to energy access crowdfunding in Asia, our understanding of activity there is somewhat limited.

This paper stipulates figures in USD, unless stated otherwise. Where figures have been converted to USD, we have utilised the 2016 average exchange rate, sourced from Oanda.

1. B. Zhang et al., ‘Africa and Middle East Alternative Finance Benchmarking 27. ‘How to raise over $700k on Kickstarter & provide solar light to people in Report’, Cambridge Centre for Alternative Finance, 2017, https://www.jbs. need’ Entrepreneurs for Change, 2015, https://soundcloud.com/lornali/ cam.ac.uk/faculty-research/centres/alternative-finance/publications/, entrepreneurs-for-a-change-3, (accessed June 16 2017). (accessed 16 June 2017). 28. Ibid. 2. Excludes funds raised by WakaWaka, which is active in 61 countries, Kenya 29. Final Call, WakaWaka Blog, 2017, https://waka-waka.com/news/2016/12/ inclusive. final-call/, (accessed 16 June 2017). 3. B. Zhang et al., ‘Africa and Middle East Alternative Finance Benchmarking 30. WakaWaka employed four staff over the course of their initial Kickstarter Report’, Cambridge Centre for Alternative Finance, 2017, https://www.jbs. campaign. cam.ac.uk/faculty-research/centres/alternative-finance/publications/, 31. Caroline Angus, interviewed by Makena Ireri, 2017, Somerset House, (accessed 16 June 2017). London. 3. Ibid. 32. Wexler. H, and S. Lewin, ‘Why Isn’t Israel, the “Startup Nation”, also 4. Ibid. the Crowdfunding Nation’, Pando, January 27 2014, https://pando. 5. Ibid. com/2014/01/27/why-isnt-israel-the-startup-nation-also-the- 6. Ibid. crowdfunding-nation/, (accessed 16 June 2017). 7. Crowdsurfer, Energy 4 Impact aggregate data, 2016. See Notes on Data 33. InfoDev, Crowdfunding in Emerging Markets: Lessons from East African Sources. Startups, 2015, https://www.infodev.org/infodev-files/crowdfunding-in- 8. Eleanor Harrison, interviewed by Simon Collings, 2017, Global Giving UK east-africa.pdf, (accessed 16 June 2017). Office, London. 34. Kuppuswammy. V, and K. Roth, Research on the Current State of 9. Crowdsurfer data, 2016, see Notes on Data Sources. Crowdfunding: The Effect of Crowdfunding Performance and Outside Capital, 10. Crowdsurfer data, 2015, see Notes on Data Sources. U.S. Small Business Association, 2016, https://www.sba.gov/sites/default/ 11. Kiva, Kiva Annual Report 2014, https://www.kiva.org/about/finances/ files/433-Crowdfunding-Performance-and-Outside-Capital.pdf, (accessed annualreport/2014, (accessed 16 June 2017). 16 June 2017). 12. Ibid. 35. Ibid 13. Energy 4 Impact data, 2016, see Notes on Data Sources. 36. Kickstarter, WakaWaka Base: a Power & Light First Aid Kit, 2014, https:// 14. Global Giving data, 2017, see Notes on Data Sources. Energy 4 Impact www.kickstarter.com/projects/wakawaka/wakawaka-base-a-power-and- conducted analysis of data from six Global Giving campaigns. light-first-aid-kit, (accessed 16 June 2017). 15. Ibid. 37. WakaWaka, Solar for Philippines Success Stories, 2014, https://waka-waka. 16. Bloomberg New Energy Finance and Lighting Global, Off-Grid Solar com/news/2014/01/solar/, (accessed June 16 2017). Market Trends Report 2016, 2016, https://about.bnef.com/blog/off-grid- 38. WakaWaka, Impact Map, 2017, https://waka-waka.com/impact/, solar-market-trends-report-2016/, (accessed 16 June 2017). (accessed June 16 2017). 17. Global Giving data, 2017, see Notes on Data Sources. Energy 4 Impact 39. InfoDev, Crowdfunding in Emerging Markets: Lessons from East African conducted analysis of data from six Global Giving campaigns. Startups, 2015, https://www.infodev.org/infodev-files/crowdfunding-in- 18. Byrne, R. and K. Mbeva, ‘The Political Economy of State-led east-africa.pdf, (accessed 16 June 2017). Transformations in Pro-poor Low Carbon Energy: A Case Study of Solar 40. Ibid. PV in Kenya’, STEPS Centre, 2016, https://steps-centre.org/publication/ 41. Ibid. political-economy-state-led-transformations-pro-poor-low-carbon- 42. Ibid. energy-case-study-solar-pv-kenya/, (accessed 16 June 2017). 43. Energy 4 Impact data, 2016. See Notes on Data Sources. 19. Rom, A., I. Günther, and K. Harrison, ‘The Economic Impact of Solar 44. https://www.zidisha.org/statistics Lighting: Results from a randomised field experiment in rural Kenya’, 45. Kiva, Annual Report 2014, https://www.kiva.org/about/finances/ ETH Zurich, Acumen Fund, SolarAid, 2017, https://www.ethz.ch/content/ annualreport/2014, (accessed 16 June 2017). specialinterest/gess/chair-development-economics/en/research/solar- 46. Lenders do not receive a return on their capital, however the lending lighting.html, (accessed 16 June 2017). partner can charge the borrower interest. 21. Kyai Mullei, interviewed by Davinia Cogan, 2017, via Skype, Nairobi. 47. Kiva, About, 2017, https://www.kiva.org/about/how, (accessed 16 June 21. M-Changa data, 2016 – 2017, see Notes on Data Sources. Energy 4 Impact 2017). conducted analysis of data from six M-Changa campaigns. 48. Milaap, Impact, 2017, https://milaap.org/about-us/impact, (accessed 16 22. Ibid. June 2017). 23. Kickstarter, Stats, 2017, https://www.kickstarter.com/help/stats, (accessed 49. Zidisha, Statistics, https://www.zidisha.org/statistics, (accessed 16 June 16 June, 2017) 2017). 24. ‘How to raise over $700k on Kickstarter & provide solar light to people in 50. Kiva, Kiva Annual Report 2014, https://www.kiva.org/about/finances/ need’ Entrepreneurs for Change, 2015, https://soundcloud.com/lornali/ annualreport/2014, (accessed 16 June 2017). entrepreneurs-for-a-change-3, (accessed June 16 2017). 51. Kiva, Kiva Annual Report 2015, https://www.kiva.org/about/finances, 25. Ibid. (accessed 16 June 2017). 26. White, C., ‘Solar charger powers a smartphone after a day in the 52. Kiva, About, 2017, https://www.kiva.org/about, (accessed 16 June 2017). sun’, Mashable, 2017, http://mashable.com/2013/01/02/solar- 53. SunFunder, 2017, sunfunder.com, (accessed 16 June 2017). charger/#dOuOT26JtPqE, (accessed June 16 2017). 54. SunFunder, 2016 – a breakthrough year for SunFunder, 2017, http:// sunfunder.com/annual-review-2016#intro, (accessed 16 June 2017).

44 55. Tyabji. N, ‘New $50 Million Fund Enables SunFunder to Scale Off-Grid 65. Energy 4 Impact aggregate data, 2016. See Notes on Data Sources. Solar Investment’, Rockefeller Foundation, October 12 2016, https://www. 66. K. Garvey et al., ‘Crowdfunding in East Africa: Regulation and Policy for rockefellerfoundation.org/about-us/news-media/new-50-million-fund- Market Development’, Cambridge Centre for Alternative Finance, January enables-sunfunder-scale-off-grid-solar-investment/, (accessed June 16 2017, https://www.jbs.cam.ac.uk/faculty-research/centres/alternative- 2017). finance/publications/, (accessed June 16 2017). 56. Energy 4 Impact data, 2016. See Notes on Data Sources. 67. Middle East and North Africa based social enterprise, focused on financial 57. Andreas Lehner, interviewed by Davinia Cogan, 2017, via Skype, inclusion. Gothenburg. 68. Kiva Blog, We did it! Amazing Million Dollar Match Day, https://www.kiva. 58. Crowdsurfer, Energy 4 Impact aggregate data, 2016. See Notes on Data org/blog/kiva/2014/07/14/we-did-it-amazing-million-dollar-match-day, Sources. (accessed 16 June 2017). 59. Bloomberg New Energy Finance and Lighting Global, Off-Grid Solar Market 69. The protection is applied to the outstanding loan amount rather than the Trends Report 2016, 2016, https://about.bnef.com/blog/off-grid-solar- original loan amount. market-trends-report-2016/, (accessed 16 June 2017). 70. $3.4 million was raised across all energy-access related energy campaigns 60. A. Saldinger, ‘Off-grid solar power is gathering steam in Africa, what’s in 2015. next?’, Devex Impact, 26 October 2015, https://www.devex.com/news/ 71. European Crowdfunding Network, ‘Updated European Prospectus off-grid-solar-power-is-gathering-steam-in-africa-what-s-next-87149, Regulation for Issuers of Securities’, 22 December 2016, (accessed 16 June 2017). 72. http://eurocrowd.org/2016/12/22/updated_prospectus_regulation_for_ 61. A. Scott et al., ‘Accelerating access to electricity in Africa with off-grid solar’, issuers_of_securities/, (accessed 16 June 2017). ODI, January 2016, https://www.odi.org/publications/10200-accelerating- 73. How to raise over $700k on Kickstarter & provide solar light to people in access-electricity-africa-off-grid-solar, (accessed 16 June 2017). need’, Entrepreneurs for Change, 2015, https://soundcloud.com/lornali/ 62. C. Aidun and D. Muench, ‘Securitization: Unnecessary Complexity or Key entrepreneurs-for-a-change-3, (accessed June 16 2017). to Financing the DESCO Sector?’, Persistent Energy Capital, November 74. WakaWaka Blog, Let’s Celebrate Our Impact, 2016, https://waka-waka. 2016, https://www.gogla.org/sites/default/files/recource_docs/ com/news/2016/10/celebrate-impact/, (accessed June 16 2017). securitization_-_unnecessary_complexity_or_key_to_financing_the_ 75. Energy 4 Impact aggregate data, 2016. See Notes on Data Sources. desco_sector.pdf, (accessed 16 June 2017). 76. Crowd Power terminated their partnership with Indiegogo in Q4 2016. 63. Ibid. 77. https://www.crowdsurfer.com/blog/insight-fraud-and-rewards- 64. Nuru, About Us, http://www.nuruenergy.org/about-us/, (accessed 16 crowdfunding/ June 2017). 78. Energy 4 Impact data, 2016, see Notes on Data Sources.

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